Removal from State Court Based on Expert’s Report Timely under CAFA

The Eighth Circuit Court of Appeals recently ruled that a defendant’s removal of a putative class action from state court to federal court was timely under the Class Action Fairness Act of 2005 (“CAFA”), when it was made within thirty days of receiving the plaintiffs’ expert report, the first document to set forth a factual basis for a total recovery in excess of $5 million (CAFA’s jurisdictional amount). Correspondingly, the time for removal had not run from receipt of a settlement letter that “recommended” (but did not “demand”) a total payment in excess of $5 million, which was not factually supported.

CAFA generally provides federal district court jurisdiction over a class action where the class exceeds 100 members, the amount in controversy exceeds $5,000,000 in the aggregate, and at least one class member is from a different state than at least one defendant. CAFA incorporates 28 U.S.C. §1446, which provides that the defendant may remove the case if it does so within thirty days after receiving “an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable.” Courts have held that a settlement letter may constitute an “other paper” for purposes of removal.

Gibson v. Clean Harbors Environmental Services, Inc., is a putative class action asserting state law tort claims for damages resulting from hazardous chemicals released from a waste storage and treatment facility. The plaintiffs’ original complaint did not contain allegations that would support potential class damages in excess of $5,000,000 (and, in fact, expressly disclaimed seeking that much to try to avoid CAFA jurisdiction, although a later Supreme Court case clarified that such a disclaimer is ineffective). As such, the original complaint provided no basis for removal. However, plaintiffs sent a settlement letter more than three years later, which suggested a total settlement fund of $6,500,000. Plaintiffs argued that the settlement letter provided sufficient notice to the defendant that a federal district court had jurisdiction to hear the class action suit. The district court agreed and, finding removal to have been untimely, remanded the case to state court. The Eighth Circuit reversed on appeal.

Adopting the “bright-line approach” applied by other circuits, the Eighth Circuit Court of Appeals held that the thirty-day removal period with respect to CAFA cases does not start “until the defendant receives from the plaintiff an amended pleading, motion, order, or other paper, from which the defendant can unambiguously ascertain that the CAFA jurisdictional requirements have been satisfied” (emphasis added). The defendant does not have a duty to perform its own investigation, or even to search its own business records, to determine whether the case is removable.

A divided three-judge panel of the Court of Appeals found the March 11 letter ambiguous because: (1) It did not clearly state that the amount of $6,500,000 would definitively settle the case; it only “recommended” that the payment would “resolve this matter;” and (2) The letter did not define the geographical area affected by the chemical release, and so did not provide a factual basis for determining the total number of residents allegedly affected. Thus, it was not possible to ascertain from the settlement letter whether CAFA’s amount-in-controversy requirement was satisfied.

Instead, the time for removal was triggered by the plaintiffs’ expert report (served just over a month after the settlement letter). This report was the first paper provided by plaintiffs from which defendant could “unambiguously ascertain” that the jurisdictional requirements of CAFA had been satisfied to trigger the thirty-day removal window. This report set forth the method for determining the area impacted by the chemical release. Thus, the defendant’s removal of the case to federal court less than thirty days after its receipt of the expert report was timely.

Although the Eighth Circuit nominally adopted a “bright-line approach,” the application of that approach to the facts in Gibson was not clear cut. In many cases, it is difficult for a defendant to ascertain whether the time for CAFA removal has been triggered.

Weiner Brodsky Kider regularly defends financial services companies throughout the United States against class action claims.